Casino Plays It Safe

Casino Guichard-Perrachon
has entered an interest-rate swap to convert a
EUR200 million (USD181 million) fixed coupon bond into a
synthetic floater.
Laurent
Zecri, head of
interest-rate risk management in Saint-Etienne, said in the
swap the casino pays a 6% fixed rate and receives three-month
Euribor plus 89 basis points. The swap mirrors the bond's
size and 2008 maturity.

Zecri said the group keeps all of its EUR3.8
billion debt in floating rate because it more accurately matches
the casino's revenues. Zecri explained when the
European Central Bank
cuts rates it usually indicates a slowing economy
and therefore falling casino revenues, the reverse is true of
interest-rate hikes.
BNP
Paribas,
Crédit
Agricole Indosuez,
Merrill Lynch
and
J.P. Morgan
are counterparties to the swap and lead managed the
bond. Three-month Euribor was 4.80% on Monday. Spokespersons at the
four banks did not return calls.

The casino issued the bond because the banks
approached it with investors already lined up. The deal offered a
better funding rate than issuing an FRN, Zecri explained, although
he was unable to detail how much this issue shaved off its all-in
cost of funds. It will use the proceeds to refinance
debt.

Relationship and price are the most important
factors in choosing a counterparty, according to Zecri. The only
type of derivative instruments the casino uses are interest-rate
swaps, caps and floors. It buys floors as part of collar
transactions with the intention of selling them at a profit if they
move into the money. All of its debt is in euros.